Q&A: KAM vice-chairman discusses the incentives to make the local industry competitive and why he isn’t to worried about disruption
Manufacturing has been identified as one of the sectors that could offer sustainable solution to Kenya’s mass youth unemployment.
President Uhuru Kenyatta has picked the sector, whose contribution to Kenya’s gross domestic product (GDP) dropped to 8.4 per cent in 2017, as one of the pillars of growth during his second term in office under the ‘Big Four Agenda’.
The goal is to push its share of the national wealth to 15 per cent in the next five years and reap the accompanying benefits such as employment creation. Industrialists say that to realise this goal, there will have to be investment in strategic long-term systems.
The Kenya Association of Manufacturers (KAM) vice-chairperson Sachen Gudka spoke to the Business Daily on the industry’s view of its role in Kenya’s economic advancement and what must be done to meet the ambitious targets. Here are the excerpts:
What are key incentives needed to jumpstart the industry towards the ‘Big Four Agenda’ targets?
We must urgently address competitiveness because when you look at Kenya in terms of global benchmarks, cost levels are at least 10 per cent higher. We need to address that cost imbalance because foreign investments will flow into countries that have the lowest cost of production.
The reality today is that we have too many levies, including IDF (Import Declaration Fees) and RDL (Railway Development Levy) that have lowered our competitiveness straightaway by two per cent and 1.5 per cent respectively.
These should be removed for manufacturers bringing in raw materials and increased on finished goods coming in. Secondly, there should be incentives for exporters just like East Asian markets did.
For example, China gave rebates of 15-16 per cent to exporters at the beginning. India, Vietnam and every major exporter you know of have done that.
Those incentives have propelled jobs and direct foreign investments in those countries. They have created a very strong export base because they have incentivised local companies to go out and export.
Looking at the export volumes and growth in the past 10 years does not offer so much inspiration. Is there something that could be done to reverse this?
Our exports, especially to the region, are down because there are no export incentives and we don’t even get our VAT refunds on time. The third one is to deal with illicit, un-customed, under-invoiced and counterfeit goods that enter through our porous borders.
There are so many goods coming in through the port of Mombasa and the Eldoret International Airport in this category and, frankly, the government is not doing anything about it.
That eats into the market share of companies which have legitimate products. The enforcement of proper tariffs at our borders is really wanting and that needs to be fixed.
Raw materials are the lifeblood of industry. How are we going to ensure the supply is sustainable?
The focus is on regeneration and sustainability of production. We also need to ensure we use all utilities in an effective and sustainable manner because we are living on limited materials.
The key topic right now is how we reduce single-use plastics. Industry and manufacturers are starting to take on what we call Extended Producer Responsibility (ERP) and take-back schemes.
Essentially, we have a serious problem in Kenya where consumers just drop bottles out of cars and buses on to the streets. There’s no civic responsibility because people look at bottles as worthless. What we must to do is put a value to the bottle so it encourages better disposal, collection, recycling and upcycling.
When bottles are collected, they are taken to a recycler, who can either recycle them back to flakes that produce new pet bottles or upcycle then and start making different products out of it.
It is a big area of focus for now, and we are working closely with the Environment ministry and Nema (National Environment Management Authority) to realise that goal.
What’s new in KAM’s approach since plastic recycling schemes are already in place, although at a small scale?
Manufacturers will now be brand owners. They will be paying levy, say Sh2,500 per tonne, to subsidise recyclers to make a payment to the collectors and, essentially, creating a value for the bottle. And that’s driven by the industry.
It has worked in many countries, including South Africa. The other area of focus is packaging. There’s an initiative driven by global multinationals called Forestry Stewardship Council (FSC).
People need to be FSC-certified to produce labels for big multinationals such as East African Breweries. This means having a proper chain of custody from the origin to the paper mills through the converters and right through to the end-users.
What are the major benefits of such initiatives to the economy?
The impact will be tremendous for the green economy that we are working towards. However, it require a change in consumer habits to ensure they dispose of things properly. It will ensure there are enough avenues for disposal, there’s collection of what has been disposed of and recycling of what has been collected.
What are you doing as an industry to ensure the skills you have today will remain relevant in years to come?
There’s a shortage of skillsets for industry currently. The good news is that Kenyans are “retrainable”. Once given a training opportunity, it’s a pretty fast-learning curve for them.
They get to the end-result and acquire the required skillsets very quickly. We possibly made a mistake in changing our polytechnics to technical universities.
I believe, we can get back to technical training institutions that teach hands-on technical skillsets. Is there a demand for technical people? Absolutely. Industry values them. We need to partner with education institutions in creating the right curriculum for us to get ready-trained people to come in.
How as a sector do you ensure investment in technology will be relevant in medium to long term?
Kenyan industry and manufacturers have state-of-the-art technology and world-class equipment. Those that invest in and keep up with up-to-date technology will survive and thrive, but those that don’t keep up will be disrupted and may die.
Every industry in Kenya has world-class players and the quality of goods we make are at par with what you will get elsewhere. So when we are planning for an investment decision, we should be planning for at least five or six years. But should our industry be disrupted when something new comes, we should be able to upgrade. Kenyans are generally a mixture of early adopters of technology as well as midstream adopters.
Industries operate within communities. How are you of benefit to them?
Industrial relations have to be very strong to achieve sustainability. If there are issues, the companies have to work hand-in-hand with trade unions to ensure disputes are resolved quickly.
Companies also participate in CSR (Corporate social responsibility) activities such as tree planting and clean-ups within communities. For example, KAM will on May 19 install bins at various bus terminals in Nairobi in partnership with Environment ministry and Nema.
There are also companies in agriculture sector, for example, which work hand-in-hand with small-scale farmers by supplying them with seeds and technical skills through sustainable partnerships.